Breakingviews - Samsung guilty verdict is a victory for reformers

HONG KONG (Reuters Breakingviews) - A guilty verdict for Samsung Group’s de facto leader is a victory for reformers. On Friday Jay Y. Lee, the third-generation boss of South Korea’s biggest business, was sentenced to five years in jail for bribing the country’s previous president, embezzlement and other charges. Assuming the sentence is not overturned, this boosts President Moon Jae-in, who vowed to rein in powerful conglomerates. It should scare other bosses into behaving better.

Samsung Group chief, Jay Y. Lee arrives at the office of the independent counsel team in Seoul, South Korea, February 19, 2017. REUTERS/Kim Hong-Ji

The ruling is a key moment in what prosecutors dubbed the “trial of the century”. For six months, they had cast the 49-year-old heir as the symbol of crony capitalism.

To be sure, this is not definitive. Lee will appeal, meaning a final decision will not come until next year. And sceptics will note that the country has seen a string of corporate scandals, often with limited repercussions. Lee’s own father was convicted twice on charges including tax evasion and bribery, and was eventually pardoned. Other corporate bosses have also had sentences commuted.

Nonetheless, the outcome reflects a toughening official stance towards the country’s powerful, family-run conglomerates, known as chaebols. Lee’s five-year sentence is less than half what prosecutors sought, but is still one of the longest handed to a chaebol boss - and too long for it to be suspended.

President Moon took office this year after campaigning on a platform of corporate reform. Notably, he hired two outspoken chaebol critics: Chang Ha-sung as chief of staff for policy, and Kim Sang-jo as antitrust head. The latter, nicknamed the “chaebol sniper”, told Reuters this month his agency planned to investigate several outfits that abused dealings with sister companies.

Up until now, proposals to strengthen regulations on businesses, such as banning the use of treasury shares in corporate restructuring, have been stalled in parliament, where Moon’s party has no majority. Lee’s conviction could bolster the president’s political standing, making it more likely he can build support for new legislation.

Public anger has built against the chaebols, which have historically seemed both above the law, and run largely for the benefit of their founding families. Other corporate chieftains will be watching intently.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.